B’CASTERS MUST-CARRY THE DAY

Diller dances in Street; cable stox take tumble

NEW YORK — The Supreme Court’s unexpected decision to uphold the must-carry law Monday created waves on Wall Street. It lifted stocks of directly affected broadcasters such as Barry Diller’s HSN Inc., parent company of Silver King Communications, and Paxson Communications Corp. and pummeled stocks of cable operators, cable programmers and satellite TV providers like Echostar and News Corp.

“What a fantastic and unexpected development,” crowed Diller, as HSN’s stock price jumped $2.18 to $25.12 on a day the Dow Jones Industrial Average fell 171 points.

Also getting a boost from the decision was Paxson stock, which jumped $1.87 to $10.87. Paxson chairman Bud Paxson said the decision was a “resounding acknowledgment of the vital role played by broadcast television station operators in providing free programming to the people of the United States.”

Under the must-carry provision of the Cable Act of 1992, each cable system must set aside up to one-third of its channel capacity for local TV stations.

Diller wants to develop a new programming service to be carried on the Silver King group of TV stations now part of HSN, and the uncertainty over must-carry had raised doubts about prospects for the new service. Diller justified last year’s merger of Silver King and HSN partly by saying it would reduce the company’s vulnerability to a loss of must-carry.

“Clearly it’s great for us and our desire to create a new program voice,” Diller noted in a statement Monday. “We had said that we would compete anyway, but now it sure makes our endeavor a lot less speculative,” he said, adding that it was also nice to see the “morning line once again proved wrong.”

Stronger position

Paxson was even more vulnerable to a loss of must-carry because it carried infomercial programming which competed in some ways with electronic shopping networks HSN and QVC, both partly owned by cablers who would have been happy to dump Paxson from their systems, analysts said. Paxson has for the last several months been meeting with program suppliers, and plans to reformat his stations to resemble more conventional broadcasters.

“We come to the table a little stronger because of must-carry,” Paxson said, adding that the decision also gives the group operator more time to make over its stations.

On the negative side, the ruling was not good news for the cable industry, which was counting on loss of must-carry to open up new channel capacity and create room for startup cable networks. Cable stocks across the board fell: TCI closed down 50¢ to $12, Time Warner dropped 75¢ to $43.25 and Comcast fell 37¢ to $17.

Double-edged sword

While broadcasters cheered the decision, the broadcast networks, paradoxically, were also stung. ABC, NBC, Fox and CBS all have new cable networks for which they are hoping to increase carriage, but will now have a harder time beefing up distribution.

“Cable programmers are the biggest losers, because if anybody was looking for new channel capacity to be freed up, they’re not going to get it now,” said Lehman Bros. analyst Larry Petrella. Viacom, a major cable programmer, saw its stock fall 50¢ to $32.50.

Petrella added that the ruling is a “small negative” for cable operators, who already live with must-carry, but said that the ruling could potentially be positive for cablers if it ends up hurting the satellite TV ambitions of News Corp. and EchoStar. News Corp. stock fell 37¢ to $18, while Echostar shares dropped $1.50 to $20.50.

“The latest entrants to the cable-network universe will suffer the worst impact,” says Mark Feldman, senior VP of business and legal affairs for E! Entertainment TV. “They’ll be facing a marketplace made artificially uncompetitive” by the Supreme Court decision.

“It’ll now take a lot longer for new networks to get the distribution and carriage they need” to survive, says Jim O’Brien, president and chief operating officer of Jones Intercable, a top-10 multisystem operator.

The court’s view “seems inappropriate at this point in time” given the deregulatory-minded environment, said Cablevision Systems’ Rainbow Programming president/CEO Josh Sapan.Although none of the new, limited-circulation cable networks says they built it in to their business plans, these startup channels were clearly counting on getting a boost from the disappearance of must-carry.

Flak in Sky

On the satellite front, one of News Corp. topper Rupert Murdoch’s key selling points for American Sky Broadcasting (ASkyB) Television is the idea of offering local stations in its mix. Part of that pitch was based on the assumption that must-carry would be struck down. Now that it’s not, cable operators will have to carry local stations, which may lessen the value of Murdoch’s pitch.

On top of that, cable operators may try to use the high court’s ruling to force Murdoch and other satellite operators to carry all local stations, which would be a huge technical and financial challenge.

While News Corp. and its satellite partner EchoStar had no comment on the ruling, a News Corp. source said that if Congress does draft must-carry legislation for satellite companies, it would have to be limited in scope because of the channel capacity limitations of direct broadcast satellite distributors.

A further worry, voiced by Judi Allen, senior VP of marketing for Century Communications, another top-10 MSO, is that a number of new TV stations will file for broadcast licenses and demand must-carry from cable operators. “Some of these entities held off” while the Supreme Court was deliberating, Allen said, “and now they’ll be encouraged by the decision.”

Win for weblets

Entrepreneurs in markets where there are no WB or UPN network-affiliated TV stations will also be spurred to create new TV stations, using WB or UPN programming as the linchpin of their service, according to some cable operators.

Most operators claimed to be just as upset as the cable networks over the must-carry decision.

“It’s negative,” said a spokesman for Time Warner Cable, the second largest cable operator in the U.S., “because we won’t have the opportunity to offer more popular cable network programming instead of TV stations that we’re forced to carry even though no one watches them.”

(Joe Flint in Los Angeles and Gary Levin in New York contributed to this report.)